Enron could keep control of the utility Ñ for now

If Enron Corp. executives get the go-ahead to include Portland General Electric in a new company, the move probably will require regulatory review by the Oregon Public Utility Commission, energy and legal experts say.

Houston-based Enron, PGE's parent, released a bankruptcy reorganization plan Friday that places PGE at the core of its proposed new company, OpCo Energy Co.

Because OpCo's management and financial structure differ from that of Enron Corp., which bought PGE in 1998, state utility experts should treat the new company as a new owner, said Robert McCullough, a Portland-based energy consultant.

'We're not talking about the same entity,' McCullough said. 'If we have a substantive change in ownership, then we have to have a PUC review. This is no free pass around the Oregon Public Utility Commission.'

At least one PGE employee agrees that the new company should get a full-scale probe.

'I think they (Enron) should be reviewed again and make sure everything is square,' said a PGE lineman, Stephen Lacey, one of the first employees to file a claim against Enron for 401(k) losses.

Enron says the OpCo proposal doesn't necessarily mean it's scrapping the deal to sell PGE to NW Natural for $2.9 billion; that's still one of two options available. 'We're a long way from creating a new name and getting approval of a new entity,' said John Ambler, an Enron spokesman. The plan 'recognizes new management of Enron and that there is new value to it,' he said. 'We certainly at this point are not abandoning the NW Natural deal.'

There has been no discussion about splitting up PGE's assets, he said.

NW Natural Chairman Richard Reiten issued a statement: 'We continue to believe that combining NW Natural and PGE is the best option for all concerned, including PGE, its customers, employees and Enron's creditors.'

Utility bankruptcies rare

Since utility bankruptcies are rare, there is little legal precedent for Enron's maneuvers, said Kevin Neely, a spokesman for the Oregon attorney general's office. The two most prominent bankruptcy filings by utilities in recent years were California's PG&E last month and Public Service Co. of New Hampshire in 1988.

'It's a tricky issue. When push comes to shove, no one is sure if federal bankruptcy law trumps state regulators,' said Al Alexanderson, the recently retired counsel for PGE.

In this case, it is PGE's parent company that filed for bankruptcy reorganization.

Furthermore, Alexanderson said, it's still unclear if there will be a transfer of ownership of PGE, or if OpCo will look like the old Enron, much smaller but with a new name.

A change in ownership would give Oregon regulators greater jurisdiction over Enron's overhaul.

But even without an ownership change, there is no legal prohibition against utility commissioners conducting an investigation of the new Enron, 'as long as it regards safe and effective utility service,' Alexanderson said.

'These are questions we have to answer for the public utility commission of whether this constitutes a new company and must go through the review we would undertake if ownership is transferred,' said Neely in the attorney general's office. 'There are a multiple level of steps first.'

The state has a lawsuit pending against Enron, accusing the company of fraud and racketeering.

The final decision on PGE is up to a creditors committee and a New York bankruptcy judge.

Stephen Cooper, interim chief executive at Enron, said the new OpCo is the best way for Enron to return to profitability. OpCo includes PGE, a Brazilian utility called Elektro and 9,000 miles of power transmission lines. PGE reported $32 million in profits on revenues of $766 million in the first quarter.

Although Cooper did not mention PGE in Friday's 45-minute conference call with reporters, he said Enron's 'core energy and businesses are very solid assets.'

'Literally, all of them have stable revenues,' he said. 'We hope it (bankruptcy plan) will be blessed by the bankruptcy court.'

It is the second time in 80 years that PGE has been entwined in a bankruptcy scandal.

The Portland utility was owned in the 1920s by Chicago utility baron Samuel Insull, who was tried and acquitted of securities fraud in the mid-1930s.

When Insull went bankrupt, PGE was saved by several Portland businessmen, including its president, Franklin T. Griffith, and Portland bankers E.B. MacNaughton and J.C. Ainsworth. Arthur Andersen was the auditor for both Insull and Enron.

'We're going through the same thing now,' McCullough said.

NW Natural already has invested more than $11 million in the purchase of PGE, which is under review by the PUC. Until recently, Enron had assured NW Natural that it would go ahead with the PGE sale.

More than one option

Alexanderson said that if Enron decides to forge ahead with OpCo, NW Natural could try to buy a controlling interest in the new company.

But given the ongoing travails, NW Natural should use Enron's latest announcement as an 'out' for the deal, said former PUC Chairman Ron Eachus, now a Salem-based consultant.

NW Natural 'was getting a little worried about the deal themselves,' said Eachus, who worked with former Enron Chairman Kenneth Lay and President Jeffrey Skilling on the 1998 deal.

'If NW Natural fights this, it becomes a hostile takeover and that doesn't work with a public utility,' Eachus said. 'I felt like people were jumping on the bandwagon too quickly to sell PGE to NW Natural. It wasn't the regulated utility that screwed stockholders, it was the holding company.'

PGE employees do not appear to oppose Enron's retaining PGE, despite Enron's mishandling of their 401(k) funds and loss of millions in retirement money.

'I had some mixed feelings about going to the gas company,' said PGE's Lacey, one of the original plaintiffs suing Enron for lost retirement benefits.

'Their cash flow is smaller than us, and we may not see any benefits for a few years,' Lacey said. 'It's scary to think we'd stay at Enron, but if he's (Cooper) truly a master at bringing companies out of the red that may not be so bad.'

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